BLUEBIRD BIO, INC. The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K, which was filed with theSecurities and Exchange Commission , or theSEC , onFebruary 18, 2020 . Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q, words such as "may," "expect," "anticipate," "estimate," "intend," "plan," and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including those risks identified under Part II, Item 1A. Risk Factors. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of theSEC , to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. Overview We are a biotechnology company committed to researching, developing, and commercializing potentially transformative gene therapies for severe genetic diseases and cancer. We have built an integrated product platform with broad therapeutic potential in a variety of indications based on our lentiviral gene addition platform, gene editing and cancer immunotherapy capabilities. We believe that gene therapy for severe genetic diseases has the potential to change the way patients living with these diseases are treated by addressing the underlying genetic defect that is the cause of their disease, rather than offering treatments that only address their symptoms. Our gene therapy programs include LentiGlobin for ?-thalassemia; LentiGlobin for SCD; and Lenti-D for CALD. Our programs in oncology are focused on developing novel T cell-based immunotherapies, including CAR and TCR T cell therapies. bb2121 (idecabtagene vicleucel, or ide-cel), and bb21217 are CAR-T cell product candidates for the treatment of multiple myeloma and partnered under our collaboration arrangement with BMS. We are commercializing ZYNTEGLO in theEuropean Union and expect to begin to generate product revenue in the second half of 2020. We are engaged with theEuropean Medicines Agency , or EMA, in discussions regarding our proposed development plans for ZYNTEGLO as a treatment for patients with TDT who are less than 12 years of age and for patients who have a ?0/?0 genotype. We are engaged with theU.S. Food and Drug Administration , or FDA, in discussions regarding our proposed development plans for LentiGlobin as a treatment for patients with TDT. We currently expect to complete our BLA submission for LentiGlobin for ?-thalassemia for the treatment of patients with TDT in mid-2021. Based on our discussions with the FDA, we believe that we may be able to seek accelerated approval for LentiGlobin for SCD inthe United States on the basis of clinical data from Group C of our ongoing HGB-206 clinical study, with a potential first submission in the second half of 2021, and with our ongoing HGB-210 clinical study providing confirmatory data for full approval. We are also engaged with the EMA in discussions regarding our proposed development plans for LentiGlobin for SCD inEurope . Based on our discussions with the FDA and EMA, we believe that we may be able to seek approval for our Lenti-D product candidate for the treatment of patients with CALD on the basis of our clinical data from our ongoing Starbeam study, safety data from our ongoing ALD-104 study, and the completed ALD-103 observational study. We expect to submit a 27 -------------------------------------------------------------------------------- Table of Contents Marketing Authorization Application in the EU for Lenti-D for CALD by year-end 2020. We expect to submit the BLA for Lenti-D for CALD in mid-2021. In collaboration with BMS (which acquired Celgene inNovember 2019 ), we are developing the ide-cel and bb21217 product candidates as treatments for multiple myeloma, a hematologic malignancy that develops in the bone marrow and is fatal if untreated. We are co-developing and co-promoting ide-cel inthe United States with BMS and we have exclusively licensed to BMS the development and commercialization rights for ide-cel outside ofthe United States . In the first quarter of 2020, BMS submitted the BLA for ide-cel as a treatment for relapsed and refractory multiple myeloma. We have exclusively licensed the development and commercialization rights for the bb21217 product candidate to BMS, with an option for us to elect to co-develop and co-promote bb21217 withinthe United States . Refer to Note 13, Subsequent events, in the Notes to Condensed Consolidated Financial Statements for discussion of theMay 2020 amendments to the BMS arrangement. Since our inception in 1992, we have devoted substantially all of our resources to our development efforts relating to our product candidates, including activities to manufacture product candidates in compliance with good manufacturing practices, or GMP, to conduct clinical studies of our product candidates, to provide selling, general and administrative support for these operations and to protect our intellectual property. We have not generated any revenue from product sales. We have funded our operations primarily through the sale of common stock in our public offerings, private placements of preferred stock and warrants, and through collaborations. As ofMarch 31, 2020 , we had cash, cash equivalents and marketable securities of approximately$1.02 billion . We have never been profitable and have incurred net losses in each year since inception. Our net loss was$202.6 million for the three months endedMarch 31, 2020 , and our accumulated deficit was$2.48 billion as ofMarch 31, 2020 . Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations. We expect to continue to incur significant expenses and operating losses for at least the next several years. We expect our expenses will increase substantially in connection with our ongoing and planned activities, as we: •conduct clinical studies for our clinical programs in ?-thalassemia, SCD, and ALD, fund our share of the costs of clinical studies for our program in multiple myeloma in collaboration with BMS, and advance our preclinical programs into clinical development; •increase research and development-related activities for the discovery and development of product candidates in severe genetic diseases and oncology; •manufacture clinical study materials and establish the infrastructure necessary to support and develop large-scale manufacturing capabilities; •seek regulatory approval for our product candidates; •add personnel to support our product development and commercialization efforts; and •increase activities leading up to the commercial launch of ZYNTEGLO in multiple markets. We do not expect to generate revenue from product sales until the second half of 2020. While we are in the process of completing construction and qualification of our internal lentiviral vector manufacturing capacity, currently all of our manufacturing activities are contracted out to third parties. Additionally, we currently utilize third-party contract research organizations, or CROs, to carry out our clinical development activities. As we seek to obtain regulatory approval for our product candidates and begin to commercialize ZYNTEGLO, we expect to incur significant commercialization expenses as we prepare for product sales, marketing, manufacturing, and distribution. Accordingly, until we generate significant revenues from product sales, we will seek to fund our operations through public or private equity or debt financings, strategic collaborations, or other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our products. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenues from the sale of our products, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations. 28 -------------------------------------------------------------------------------- Table of Contents Impact of the COVID-19 pandemic on our business Beginning in late 2019, the outbreak of a novel strain of coronavirus (COVID-19) has evolved into a global pandemic. As a result, we are experiencing disruptions and increased risk in our operations and those of third parties upon whom we rely, which may materially and adversely affect our business. These include disruptions and risks related to the conduct of our clinical trials and commercialization efforts, as policies at various clinical sites and federal, state, local and foreign laws, rules and regulations continue to evolve, including quarantines, travel restrictions, and direction of healthcare resources toward pandemic response efforts. We currently expect the COVID-19 pandemic to delay the timing of patient enrollment and treatment in our ongoing clinical studies by at least three months, which may vary by clinical study and by program. It is unknown how long these disruptions could continue. In addition, we expect the COVID-19 pandemic to impact our ability to achieve market access and reimbursement for ZYNTEGLO inEurope due to shifting priorities of the local authorities and healthcare system. We continue to evaluate the impact of the COVID-19 global pandemic on patients, healthcare providers and our employees, as well as our operations and the operations of our business partners and healthcare communities. In response to the COVID-19 pandemic, since earlyMarch 2020 we have restricted on-site staff at our locations worldwide to only those personnel and contractors who are performing essential activities that must be completed on-site and we have limited the number of staff in any given research and development laboratory; our remaining personnel are adhering to a work-from-home policy. Given the importance of supporting our patients, we are diligently working with our suppliers, healthcare providers and partners to provide patients with access to ZYNTEGLO, while taking into account regulatory, institutional, and government guidance, policies and protocols. Further, we are working with our clinical study sites to understand the duration and scope of the impact on enrollment and other activities for our ongoing clinical studies. Given the ongoing impact of the COVID-19 global pandemic and recent shifts in regulatory timelines, we have undertaken a comprehensive business review with the goal of ensuring the ability to achieve our 2022 vision with a path towards financial sustainability. Under our revised business priorities and operating plan, we remain on track for potential regulatory approval and commercial launch for ZYNTEGLO, ide-cel, Lenti-D for CALD, and LentiGlobin for SCD by 2022. Through this comprehensive business review, we have prioritized our key research and development programs and have made a number of changes to our future cost structure relative to our prior long-range plan, including: •Reduced investment in selling, general and administrative expenses, including a deferred investment in building a commercial organization inthe United States , reduced facilities and IT infrastructure, and other cost-reduction measures; •Prioritized investment in research and development expenses, including an indefinite pause of our planned HGB-211 clinical study in SCD patients at high risk of stroke, adjustment of the timing of investment in ongoing clinical studies to reflect COVID-19 related delays in enrollment, reduction or elimination of investment in certain preclinical programs, and other cost-reduction measures; and •Our chief executive officer will decline 100% of his salary for the next twelve months. Similarly, additional members of our senior leadership team and all members of our Board of Directors will forgo 20% of their salaries or Board cash retainers for the next twelve months. All will receive a grant of restricted stock units equal to 80% of the value of the released cash compensation, which will vest over one year. In total, these changes are expected to result in over$500.0 million of net cash savings through 2022 compared to our prior long-range plan. As a result, we expect our cash, cash equivalents, and marketable securities of$1.02 billion as ofMarch 31, 2020 , together with projected revenue generated under our collaborative arrangements, projected sales of products and cash inflows associated with our amended and restated agreements with BMS, to fund our revised operating plan into 2022. We expect to continue to drive additional savings through rigorous prioritization and focus on expenses, real estate optimization, and exploration of additional sources of funding to further strengthen our financial position. We discuss the amended BMS agreements in greater detail in Part II, Item 5. Other Information of this Quarterly Report on Form 10-Q as well as in Note 13, Subsequent events, in the Notes to Condensed Consolidated Financial Statements. However, the internal and external costs of executing on our revised operating plan may be higher than expected, including as a result of challenges encountered in the course of planned activities. Additionally, projected revenue generated under our collaborative arrangements, projected sales of products and cash inflows associated with our amended and restated agreements with BMS may be less than expected. The ultimate impact of the COVID-19 pandemic on our business operations is highly uncertain and subject to change and will depend on future developments which are difficult to predict, including the duration of the pandemic, the ultimate geographic spread of the disease, additional or modified government actions, new information that will emerge concerning the severity and impact of the COVID-19 pandemic and other actions taken to contain or address its 29 -------------------------------------------------------------------------------- Table of Contents impact in the short and long term, among others. We do not yet know the full extent of potential delays or impacts on our business, our commercialization efforts, our clinical studies, our research programs, healthcare systems or the global economy. Financial operations overview Revenues To date, we have not generated any revenues from the sale of products. Our revenues have been derived from collaboration arrangements, out-licensing arrangements, research fees, and grant revenues. To date, revenue recognized under our collaborative arrangements has been primarily generated from our collaboration arrangement with BMS. The terms of the arrangement with respect to ide-cel contain multiple promised goods or services, which include at inception: (i) research and development services, (ii) a license to ide-cel, and (iii) manufacture of vectors and associated payload for incorporation into ide-cel under the license. As ofSeptember 2017 , the collaboration also included the following promised goods or services with respect to bb21217: (i) research and development services, (ii) a license to bb21217, and (iii) manufacture of vectors and associated payload for incorporation into bb21217 under the license. InMarch 2018 , we entered into an agreement with BMS to co-develop and co-promote ide-cel in which both parties will share equally inU.S. costs and profits. Revenue from our collaborative arrangements is recognized as the performance obligations are satisfied. We analyze our collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements ("ASC 808") to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808, we first determine which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606, Revenue from Contracts with Customers ("Topic 606" or "ASC 606"). For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to Topic 606. Amounts that are owed to collaboration partners are recognized as an offset to collaborative arrangement revenues as such amounts are incurred by the collaboration partner. Where amounts owed to a collaboration partner exceed our collaborative arrangement revenues in a quarterly period, such amounts in excess are classified as research and development expense. For those elements of the arrangement that are accounted for pursuant to Topic 606, we apply the five-step model prescribed in Topic 606. EffectiveJanuary 1, 2020 , we adopted Accounting Standards Update ("ASU") No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 ("ASU 2018-18") on a retrospective basis. As a result, prior periods are presented in accordance with the new standard. Prior to the adoption of ASU 2018-18, we presented all revenue recognized under our collaborative arrangements as collaboration revenue on our condensed consolidated statement of operations and comprehensive loss. However, as we recognize revenue under our collaborative arrangements both within and outside the scope of Topic 606, we have revised our presentation of revenue on our condensed consolidated statement of operations and comprehensive loss as follows: service revenue includes revenue from collaborative partners recognized within the scope of Topic 606 and collaborative arrangement revenue includes only revenue from collaborative partners recognized outside the scope of Topic 606. Nonrefundable license fees paid to us are recognized as revenue upon delivery of the license provided there are no unsatisfied performance obligations in the arrangement. License revenue has historically been generated from our out-license agreements withNovartis Pharma AG , or Novartis, andOrchard Therapeutics Limited , or Orchard. Under our out-licensing agreements we may also recognize revenue from potential future milestone payments and royalties. We may also receive potential future milestone payments and royalties from our non-exclusive out-license agreement with BMS executed onMay 8, 2020 . For arrangements with licenses of intellectual property that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied. Research and development expenses Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include: 30 -------------------------------------------------------------------------------- Table of Contents •employee-related expenses, including salaries, benefits, travel and stock-based compensation expense; •expenses incurred under agreements with CROs and clinical sites that conduct our clinical studies; •costs of acquiring, developing, and manufacturing inventory; •reimbursable costs to our partners for collaborative activities; •facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, information technology, insurance, and other supplies in support of research and development activities; •costs associated with our research platform and preclinical activities; •milestones and upfront license payments; •costs associated with our regulatory, quality assurance and quality control operations; and •amortization of intangible assets. Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites. We cannot determine with certainty the duration and completion costs of the current or future clinical studies of our product candidates or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may not succeed in achieving regulatory approval for all of our product candidates. The duration, costs, and timing of clinical studies and development of our product candidates will depend on a variety of factors, any of which could mean a significant change in the costs and timing associated with the development of our product candidates including: •the scope, rate of progress, and expense of our ongoing as well as any additional clinical studies and other research and development activities we undertake; •future clinical study results; •uncertainties in clinical study enrollment rates; •new manufacturing processes or protocols that we may choose to or be required to implement in the manufacture of our lentiviral vector or drug product; •regulatory feedback on requirements for regulatory approval, as well as changing standards for regulatory approval; and •the timing and receipt of any regulatory approvals. We plan to continue to invest in research and development for the foreseeable future as we continue to advance the development of ZYNTEGLO inEurope , LentiGlobin for TDT inthe United States , LentiGlobin for SCD, Lenti-D, and bb21217 product candidates, conduct research and development activities in severe genetic diseases and oncology, fund our share of the costs of development of ide-cel in collaboration with BMS, and continue the research and development of product candidates using our gene editing technology platform. Our research and development expenses include expenses associated with the following activities: •Northstar-2 Study (HGB-207) - a multi-site, international phase 3 study to examine the safety and efficacy of ZYNTEGLO in the treatment of patients with TDT and a non-?0/?0 genotype. •Northstar-3 Study (HGB-212) - a multi-site, international phase 3 study to examine the safety and efficacy of ZYNTEGLO in the treatment of patients with TDT and a ?0/?0 genotype or an IVS-I-110 mutation. •HGB-206 study - a multi-site phase 1/2 study inthe United States to study the safety and efficacy of LentiGlobin in the treatment of patients with SCD. •HGB-210 study - our multi-site, international phase 3 study of LentiGlobin in patients with SCD and a history of vaso-occlusive events. •Starbeam Study (ALD-102) - a multi-site, international phase 2/3 study to examine the safety and efficacy of our Lenti-D product candidate in the treatment of patients with CALD. •ALD-104 study - our multi-site, international phase 3 study to examine the safety and efficacy of our Lenti-D product candidate after myeloablative conditioning using busulfan and fludarabine in the treatment of patients with CALD. 31 -------------------------------------------------------------------------------- Table of Contents •CRB-401 study - an open label, single-arm, multi-center, phase 1 study to examine the safety and efficacy of ide-cel in the treatment of patients with relapsed and refractory multiple myeloma. •KarMMA study - an open label, single-arm, multi-center phase 2 study to examine the efficacy and safety of ide-cel in the treatment of patients with relapsed and refractory multiple myeloma. •KarMMa-2 - a multi-cohort, open-label, multicenter phase 2 study to examine the safety and efficacy of ide-cel in the treatment of patients with relapsed and refractory multiple myeloma and in high-risk multiple myeloma •KarMMa-3 - a multicenter, randomized, open-label phase 3 study comparing the efficacy and safety of ide-cel versus standard triplet regimens in patients with relapsed and refractory multiple myeloma. •KarMMa-4 -, a multi-cohort, open-label, multicenter phase 1 study intended to determine the optimal target dose and safety of ide-cel in subjects with newly-diagnosed multiple myeloma •CRB-402 study - an open label, single-arm, multicenter, phase 1 study to examine the safety and efficacy of the bb21217 product candidate in the treatment of patients with relapsed and refractory multiple myeloma. •We will continue to incur costs related to the manufacture of clinical study materials in support of our clinical studies. Under our revised operating plan we have prioritized investment in research and development expenses, including an indefinite pause of the planned HGB-211 clinical study of LentiGlobin for SCD in the treatment of patients with SCD and an elevated stroke risk. We also expect that the timing of investment in our ongoing clinical studies will reflect COVID-19 related delays in enrollment and patient treatment in our HGB-206 and HGB-210 clinical studies, as well as in the KarMMa-2, KarMMa-3, and KarMMa-4 clinical studies of ide-cel sponsored by BMS. In addition, we have reduced or eliminated investment in certain preclinical programs, including certain academic collaborations in early pipeline activities, and implemented other cost-reduction measures. Our direct research and development expenses consist principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical studies, and costs related to acquiring and manufacturing clinical study materials. We allocate salary and benefit costs directly related to specific programs. We do not allocate personnel-related discretionary bonus or stock-based compensation costs, costs associated with our general discovery platform improvements, depreciation or other indirect costs that are deployed across multiple projects under development and, as such, the costs are separately classified as other research and development expenses in the table below: For the three months ended March 31, 2020 2019 (in thousands) LentiGlobin (including ZYNTEGLO)(1)$ 36,881 $ 31,846 Lenti-D 7,813 8,686 Ide-cel 31,162 19,791 bb21217 6,071 4,486 Preclinical programs 17,450 11,329 Total direct research and development expense 99,377
76,138
Employee-and contractor-related expenses 15,904
10,518
Stock-based compensation expense 16,269 15,516 Platform-related expenses 5,017 4,627 Facility expenses 16,752 14,619 Other expenses 804 1,222 Total other research and development expenses 54,746
46,502
Total research and development expense$ 154,123
(1)Following our receipt of conditional approval for the marketing authorization of ZYNTEGLO by theEuropean Commission inJune 2019 , all manufacturing costs associated with the production of LentiGlobin produced for use in the commercial sale of ZYNTEGLO in theEuropean Union will be evaluated for capitalization as inventory on our condensed consolidated balance sheets. 32 -------------------------------------------------------------------------------- Table of Contents Selling, general and administrative expenses Selling, general and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation and travel expenses for our employees in executive, operational, finance, legal, business development, commercial, information technology, and human resource functions. Other selling, general and administrative expenses include facility-related costs, professional fees for accounting, tax, legal and consulting services, directors' fees and expenses associated with obtaining and maintaining patents. We have reduced projected selling, general and administrative expenses through both the elimination and deferral of certain costs relative to our prior long-range plan. This includes a deferred investment in building a commercial organization inthe United States , reduced facilities and IT infrastructure and related costs for personnel based on our expectations for the timing of regulatory approvals and potential launch of our product candidates. However, we anticipate that our selling, general and administrative expenses, including payroll and sales and marketing expenses, will continue to increase in the future relative to current levels as we execute on our commercial launch plans inEurope for ZYNTEGLO, and perform commercial readiness activities inthe United States for our product candidates. Cost of royalty revenue Cost of royalty revenue represents expense associated with amounts owed to third party licensors as a result of revenue recognized under our out-license arrangement with Novartis. We anticipate that our cost of royalty revenue will increase in the future, contingent upon the achievement of regulatory milestones by Novartis or Orchard. Additionally, we anticipate that our cost of royalty revenue will increase in the future as we expect to continue to recognize royalty revenue related to Novartis' commercial sale of tisagenlecleucel. Change in fair value of contingent consideration OnJune 30, 2014 , we acquiredPrecision Genome Engineering, Inc. , or Pregenen. The agreement provided for up to$135.0 million in future contingent cash payments by us upon the achievement of certain preclinical, clinical and commercial milestones related to the Pregenen technology. As ofMarch 31, 2020 , there are$120.0 million in future contingent cash payments, of which$20.1 million relates to clinical milestones and$99.9 million relates to commercial milestones. We estimate future contingent cash payments have a fair value of$4.9 million as ofMarch 31, 2020 , all of which are classified as a non-current liability on our condensed consolidated balance sheets. Interest income, net For the three months endedMarch 31, 2020 and 2019, interest income, net consists primarily of interest income earned on investments. Other expense, net Other expense, net consists primarily of losses on equity securities held by us, losses on disposal of assets, and gains and losses on foreign currency. Critical accounting policies and estimates Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In making estimates and judgments, management employs critical accounting policies. During the three months endedMarch 31, 2020 , there were no material changes to our critical accounting policies as reported in our 33 -------------------------------------------------------------------------------- Table of Contents Annual Report on Form 10-K for the year endedDecember 31, 2019 , which was filed with theSEC onFebruary 18, 2020 , except as otherwise described in Note 2, Basis of presentation, principles of consolidation and significant accounting policies, in the Notes to Condensed Consolidated Financial Statements. Results of Operations Comparison of the three months endedMarch 31, 2020 and 2019: For the three months ended March 31, 2020 2019 Change (in thousands) Revenue: Service revenue$ 16,833 $ 9,211 $ 7,622 Collaborative arrangement revenue 2,302 1,966 336 Royalty revenue 2,728 1,294 1,434 Total revenues 21,863 12,471 9,392 Operating expenses: Research and development 154,123 122,640 31,483 Selling, general and administrative 73,248 60,279 12,969 Cost of royalty revenue 1,025 430 595 Change in fair value of contingent consideration (3,108) 296 (3,404) Total operating expenses 225,288 183,645 41,643 Loss from operations (203,425) (171,174) (32,251) Interest income, net 5,355 10,102 (4,747) Other expense, net (4,447) (3,389) (1,058) Loss before income taxes (202,517) (164,461) (38,056) Income tax (expense) benefit (94) 15 (109) Net loss$ (202,611) $ (164,446) $ (38,165) Revenues. Total revenue was$21.9 million for the three months endedMarch 31, 2020 , compared to$12.5 million for the three months endedMarch 31, 2019 . The increase of$9.4 million was primarily attributable to an increase in ide-cel license and manufacturing services revenue under our agreement with BMS, as well as an increase in royalty revenue. Research and development expenses. Research and development expenses were$154.1 million for the three months endedMarch 31, 2020 , compared to$122.6 million for the three months endedMarch 31, 2019 . The overall increase of$31.5 million was primarily attributable to the following: •$14.7 million of increased employee compensation, benefit, and other headcount related expenses, which is primarily driven by an increase in headcount to support overall growth, including an increase of$0.8 million in stock-based compensation expense; •$8.4 million of increased material production, laboratory expenses, and other platform costs; •$2.4 million of increased clinical trial costs; and •$2.2 million of increased consulting fees. Selling, general and administrative expenses. Selling, general and administrative expenses were$73.2 million for the three months endedMarch 31, 2020 , compared to$60.3 million for the three months endedMarch 31, 2019 . The increase of$13.0 million was primarily attributable to the following: •$13.2 million of increased employee compensation, benefit, and other headcount related expenses, which is primarily driven by an increase in headcount to support overall growth, including an increase of$3.2 million in stock-based compensation expense; and •$2.1 million of increased costs related to commercial-readiness activities. 34 -------------------------------------------------------------------------------- Table of Contents The increased costs were partially offset by$2.8 million of decreased consulting fees. Change in fair value of contingent consideration. The change in fair value of contingent consideration was primarily due to the change in significant unobservable inputs used in the fair value measurement of contingent consideration, including the probabilities of successful achievement of clinical and commercial milestones and discount rates. Interest income, net. The decrease in interest income, net was primarily related to decreased interest income earned on investments. Other expense, net. The increase in other expense, net was primarily related to changes in fair value of equity securities. Liquidity and Capital Resources As ofMarch 31, 2020 , we had cash, cash equivalents and marketable securities of approximately$1.02 billion . We expect our cash, cash equivalents, and marketable securities, together with projected revenue generated under our collaborative arrangements, projected sales of products and cash inflows associated with our amended and restated agreements with BMS, to fund our revised operating plan into 2022. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. As ofMarch 31, 2020 , our funds are primarily held inU.S. Treasury securities,U.S. government agency securities, equity securities, certificates of deposit, corporate bonds, commercial paper and money market accounts. We have incurred losses and cumulative negative cash flows from operations since our inception inApril 1992 , and as ofMarch 31, 2020 we had an accumulated deficit of$2.48 billion . We expect that our research and development and selling, general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through public or private equity or debt financings, strategic collaborations, or other sources. The likelihood of our long-term success must be considered in light of the expenses, difficulties, and potential delays to be encountered in the development and commercialization of new pharmaceutical products, competitive factors in the marketplace and the complex regulatory environment in which we operate. We may never achieve significant revenue or profitable operations. Sources of Liquidity Cash Flows The following table sets forth the primary sources and uses of cash for each of the periods below: For the three months ended March 31, 2020 2019 (in thousands) Net cash used in operating activities$ (206,121) $ (154,154) Net cash provided by (used in) investing activities 224,578 (36,913) Net cash provided by financing activities 963 10,223
Net increase (decrease) in cash, cash equivalents and restricted cash
$ 19,420 $ (180,844) Cash Flows from Operating Activities. The$52.0 million increase in cash used in operating activities for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 was partially due to the increase in net loss during this period of$38.2 million , which was driven by increased payroll and payroll-related expenses and spending on our clinical and preclinical stage programs to support overall growth. Cash used in operating activities was also driven by changes in operating assets and liabilities. Cash Flows from Investing Activities. The$261.5 million change in cash provided by (used in) investing activities for the three months endedMarch 31, 2020 was primarily due to a decrease in cash used to purchase marketable securities of$280.3 million , and a decrease of$8.6 million in cash used to purchase property, plant and equipment, primarily related to the facility inDurham, North Carolina , partially offset by a decrease of$27.5 million in proceeds received from the maturity of marketable securities, compared to the three months endedMarch 31, 2019 . 35 -------------------------------------------------------------------------------- Table of Contents Cash Flows from Financing Activities. The$9.3 million decrease in cash provided by financing activities was driven by a decrease in proceeds from the exercise of stock options and ESPP contributions in the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . Contractual Obligations and Commitments Except as discussed in Note 7, Leases, and Note 8, Commitments and contingencies, in the Notes to Condensed Consolidated Financial Statements, there have been no material changes to our contractual obligations and commitments as included in our Annual Report on Form 10-K, which was filed with theSEC onFebruary 18, 2020 . Refer to Note 13, Subsequent events, in the Notes to Condensed Consolidated Financial Statements for discussion of theMay 2020 amendments to the BMS arrangement. Off-Balance Sheet Arrangements As ofMarch 31, 2020 , we did not have any off-balance sheet arrangements as defined in the rules and regulations of theSEC . Item 3. Quantitative and Qualitative Disclosures About Market Risks We are exposed to market risk related to changes in interest rates. As ofMarch 31, 2020 andDecember 31, 2019 , we had cash, cash equivalents and marketable securities of$1.02 billion and$1.24 billion , respectively, primarily invested inU.S. government agency securities and Treasuries, equity securities, federally insured certificates of deposit, corporate bonds, commercial paper and money market accounts invested inU.S. government agency securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level ofU.S. interest rates, particularly because our investments are in short-term securities. Our available for sale securities are subject to interest rate risk and will fall in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 100 basis points, or one percentage point, from levels atMarch 31, 2020 , the net fair value of our interest-sensitive marketable securities would have resulted in a hypothetical decline of approximately$3.0 million . Item 4. Controls and Procedures Management's Evaluation of our Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in theSEC's rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. As ofMarch 31, 2020 , our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as ofMarch 31, 2020 , our disclosure controls and procedures were effective at the reasonable assurance level. Changes in Internal Control over Financial Reporting During the quarter endedMarch 31, 2020 there were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 36
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
